June 24 (Bloomberg) -- Hedge funds cut bets on a gold rally
by the most since February after the Federal Reserve laid out
plans for reducing stimulus and this year’s drop in the value of
exchange-traded products extended to $55 billion.

Speculators reduced their net-long position by 29 percent
to 38,951 futures and options by June 18, U.S. Commodity Futures
Trading Commission data show. Holdings of short contracts jumped
14 percent, the most in eight weeks. Net-bullish wagers across
18 commodities slid 2.2 percent as investors became more bearish
on copper and wheat.

Fed Chairman Ben S. Bernanke said last week that the
central bank may slow its bond-buying program if the U.S.
economy continues to improve, driving bullion to its lowest
price since 2010. Gold, which tumbled into a bear market in
April, is poised for more declines, according to Credit Suisse
Group AG and Societe Generale SA. Investors cut their holdings
through ETPs by 20 percent this year, on pace for the first
annual drop since the products were introduced in 2003.

“There’s certainly a rush to the exits in gold,” said Jim
Russell, a senior equity strategist in Cincinnati at U.S. Bank
Wealth Management, which oversees about $110 billion of assets.
“The nudge up in the Fed’s expectations economically suggests
they may unwind their program a little quicker than investors
thought.”

Most Bearish

Gold futures dropped 6.9 percent last week, the most since
April, and prices reached $1,268.70 on June 21, the lowest since
Sept. 16, 2010. Traders are the most bearish in 3 1/2 years,
with 15 analysts surveyed by Bloomberg expecting prices to fall
this week. Six were bullish and five neutral, the largest
proportion of bears since January 2010. Gold futures for August
delivery declined 1.2 percent to settle at $1,277.10 on the
Comex in New York.

The Standard & Poor’s GSCI gauge of 24 commodities
retreated 3.4 percent for the week and the MSCI All-Country
World Index of equities fell 3.2 percent. The dollar gained 2
percent against a basket of six currencies. A Bank of America
Corp. Index shows Treasuries lost 1.7 percent.

Policy makers may begin tapering asset buying this year and
end the program in 2014 should the economy and labor market
continue to improve, Bernanke said at a press conference June
19. The Fed will cut its monthly bond purchases of $85 billion
by $20 billion at its September meeting, according to 44 percent
of economists in a Bloomberg survey following Bernanke’s
remarks. Gold as much as doubled from the end of 2008 to a
record $1,923.70 in September 2011 as the Fed cut interest rates
to a record low and bought debt.

ETP Holdings

Gold holdings in global ETPs dropped 533.3 metric tons this
year. Investors may sell a further 285 tons in 2013, Societe
Generale said in a June 17 report. Assets in the SPDR Gold
Trust, the biggest bullion ETP, slumped below 1,000 tons for the
first time since February 2009 last week. Prices will drop to an
average of $1,200 in the fourth quarter, Societe Generale
forecasts. Credit Suisse sees the metal at $1,100 in 12 months,
Ric Deverell, head of commodities research at the bank, said on
June 20.

Inflation will remain a threat even with the end of the
Fed’s bond buying because of the unprecedented money printing by
central banks around the world, boosting the appeal of gold,
said John Kinsey, who helps manage about C$1 billion ($964.7
million) of assets at Caldwell Securities Ltd. in Toronto.

Japan Stimulus

Japan is making monthly bond purchases of more than 7
trillion yen ($71.67 billion). European Central Bank President
Mario Draghi cut the euro region’s main interest rate in May to
a record 0.5 percent and said policy makers were considering a
negative deposit rate. Gold priced in yen reached the highest
since March 1980 in April.

“Most of the reasons for gold as a reserve currency, as a
hedge against inflation, are still there,” Kinsey said.
“Everybody is stimulating and everybody has debt problems, and
if the economies gain some traction, I think you’re going to see
inflation come back.”

Money managers withdrew $506 million from gold funds in the
week ended June 19, according to Cameron Brandt, the director of
research for Cambridge, Massachusetts-based EPFR Global, which
tracks money flows. Total outflows from commodity funds were
$374 million, according to EPFR.

Worst Performer

The California Public Employees’ Retirement System, the
largest U.S. pension fund, said raw materials were the worst-performing asset class in the portfolio during the 12 months
through April, dropping 9.8 percent. All other asset groups
increased. Banks from Citigroup Inc. to Goldman Sachs Inc. have
said the decade-long commodity bull market is ending after
higher prices spurred expansions at mines, farms and oil fields.

Bullish bets on crude climbed 13 percent to 262,239
contracts, the highest since February 2012, CFTC data show.
Prices last week capped the first loss in three weeks on concern
that a cash crunch in China may further slow growth in an
economy that’s already cooling. Platinum holdings slumped 16
percent to a three-week low. Prices fell 5.4 percent in New York
last week, the most since December 2011.

Investors increased their net-short position in copper to
29,018 contracts, from 18,722 a week earlier, CFTC data show.
Prices fell for a sixth week, the longest slump in a year.
Stockpiles monitored by the London Metal Exchange have more than
doubled this year.

Farm Bets

A measure of net-long positions across 11 agricultural
products fell 7.9 percent to 296,081 futures and options, as
soybean and cattle holdings dropped. Bearish wheat holdings
expanded to 29,431 contracts from 16,697 a week earlier. The
money managers have held a net-short position since December.
Prices dropped 9.4 percent this year. Bullish corn bets declined
9.8 percent to 74,405, the lowest since May 21.

The U.S. Department of Agriculture projects domestic corn
and soybean output will rise to records in 2013, rebounding from
a drought last year that damaged crops and eroded supplies. The
agency will update its forecast of planted acreage on June 28.

“The overall outlook is going to be a real challenge for
commodities, particularly with the kind of news we’re getting
out of China and the emerging markets,” said Christian Wagner,
who oversees $250 million as chief investment officer of
Longview Capital Management LLC in Wilmington, Delaware.
“Investors are going to have to pick their spots.”